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October 30, 2006
Volume 84, Number 44
pp. 23-28

Chinese Industrial Parks Up The Ante

Managers of industrial development zones all over China learn to better serve foreign and domestic companies

Jean-François Tremblay

Shall it be pizza, vegetarian, or Korean? Over the past 20 years, China has upgraded the quality and range of services offered at its industrial and research parks to the point that, at some of them, a visitor can expect to find an international food court that is more reminiscent of Los Angeles than Shanghai.

No doubt there are still industrial parks in China that are managed by unresponsive bureaucrats. But the best parks, and there are several of them, are constantly upgrading the services they offer, taking their cue from the world's top industrial and research hubs.

Jean-François Tremblay/C&EN
Old and new The library of the Shanghai University of Traditional Chinese Medicine in the city's Zhangjiang Hi-Tech Park.

Industrial parks contribute disproportionately to China's stunning economic statistics. The southern city of Guangzhou estimates that foreign investors have poured more than $6 billion into the city's four industrial parks since the mid-1980s.

In picturesque Suzhou, a tourist destination located one hour's drive west of Shanghai, administrators of the China-Singapore Suzhou Industrial Park (SIP) claim that companies in the park generate 2.5% of China's gross domestic product, even though Suzhou has only 0.5% of the country's population and the park occupies a fraction of the city's land.

Located all over the country, China's industrial parks are similar in many ways. They are normally run by a state-owned corporation, with the state being either the municipal, county, provincial, or national government. Park administrators help investors get the permits they need to operate and help them solve certain problems. There are generally utilities that companies in the park can share, and the tax rate is lower than it is outside the park.

"Setting up in the Shenzhen Hi-Tech Industrial Park was for us a low-cost way to establish a research operation in Shenzhen," says Albert S. C. Chan, dean of applied sciences and textiles at Hong Kong Polytechnic University. In 2002, Chan and colleagues chose Shenzhen, a mainland Chinese city bordering Hong Kong, for a drug development lab that performs both academic and commercial work (C&EN, Nov. 4, 2002, page 23).

He says the lab space in the park cost the university much less than it would have outside the park. Moreover, he and his team did not want to be in a residential area where "people would have been selling vegetables just outside our lab." The one drawback of operating in the park, Chan says, is that the university cannot participate in any appreciation in the market value of the building it bought there. If the university wants to sell the building, it can only sell it back to the park at cost minus depreciation.

Earlier this year, Shenzhen announced that it would set up a new biopharmaceutical park to attract the manufacturing and R&D operations of companies in the biotech sector. A park administrator tells C&EN that it is still too early for her to provide details about the park. But one can easily imagine that Shenzhen was inspired by the Shanghai Zhangjiang Hi-Tech Park.

Set up in 1992, Zhangjiang has attracted both Chinese and international companies, primarily from the software, semiconductor, pharmaceutical, and chemical industries. Zhangjiang is already China's top draw for Chinese and foreign pharmaceutical and chemical companies eager to set up research operations in the country. The China R&D centers of major corporations such as General Electric and DuPont are in Zhangjiang, but the zone is also home to hundreds of start-up companies.

In addition, the park has drawn research operations from major Shanghai-area universities such as those of the Shuguang teaching hospital and the Shanghai University of Traditional Chinese Medicine. Major drug companies such as Roche, Novartis, and Eli Lilly & Co. have also selected Zhangjiang to set up their China research operations.

Covering a mere 9.5 sq miles, Zhangjiang is not that large, but 50,000 people work there. They commute easily from elsewhere in Shanghai: Zhangjiang is one of just a few industrial parks worldwide, and the only one in China, to be served by subway trains, says Ningni Yu, who is in charge of promoting pharmaceutical research in the park. Formerly a professor at the Shanghai 2nd Medical University, now part of Shanghai's Jiaotong University, Yu came to Zhangjiang in 1998.

Jean-François Tremblay/C&EN

She cites several reasons for Zhangjiang's ability to attract pharmaceutical and biotechnology companies. She says Shanghai is the center of China's pharmaceutical industry, the city where penicillin was first produced in China in the 1950s. Shanghai is home to 52 universities and colleges, several of them among the best in China. Moreover, Shanghai is traditionally the Chinese city that people living elsewhere, in China or abroad, are most willing to move to.

To facilitate the emergence in Shanghai of truly innovative pharmaceutical companies, Pharma-Engine, the corporation that Yu has headed since 2004, provides support to Chinese and foreign start-up enterprises in Zhangjiang. Pharma-Engine helps these companies in many ways, providing cash in some cases or coordinating the sharing of expensive instrumentation by several firms. "There are 200 start-up companies here, and some have become commercially successful," Yu says. She adds that Zhangjiang's new-business incubation techniques were adopted after she studied foreign models, particularly those of parks in the U.K.

In recent years, the cost of operating in Zhangjiang has soared. Salaries in particular are surging because living in Shanghai gets more expensive every year. Moreover, high-tech companies are outbidding each other for the most qualified workers. But Yu maintains that the rising costs will have little impact on Zhangjiang. If anything, cost-sensitive companies will move to other cities in China, leaving behind the most successful and innovative firms.

One entrepreneur who came to Zhangjiang recently to start up a new business is Jintao Zhang, an American citizen born in China who still spends most of his time in the U.S. He and two partners launched Medicilon, their contract research firm, in 2004. Medicilon's customers are all in the U.S., but the work is performed in Shanghai.

Jean-François Tremblay/C&EN

Zhang recalls that the company nearly set up shop in Nanjing, where the municipal government was rolling out the red carpet. Nanjing was tempting, especially considering that costs were already rising in Shanghai in 2004. He and his partners selected Shanghai only after prospective customers indicated that they would be unwilling to deal with a company located a three-hour drive from Shanghai's Pudong Airport. Zhangjiang is a half-hour away from the same airport, one of the main gateways into China.

According to Zhang, Medicilon provides its customers with a cost-effective way to perform all preclinical drug development, from the idea stage to pharmacology. It is among a small minority of contract research firms in China or India to own an animal house where it keeps mice, dogs, and primates. Animal facilities the world over are tightly regulated, and Medicilon's are inspected by the Shanghai Laboratory Animal Control Committee.

Opting for Zhangjiang rather than Nanjing was in retrospect a fine move, Zhang says. The park helped secure the permits for the animal house and the other operations. He says he has been able to find highly motivated employees who are able to work autonomously and who are used to international practices. Zhang's own professional standards come from the U.S.; he worked for eight years at MediChem, in his last post heading combinatorial chemistry. MediChem is now part of deCode of Iceland. Before MediChem, Zhang spent a chemistry postdoc at the University of Chicago and was also a research associate at Chicago's Ben May Institute for Cancer Research.

Medicilon's main challenge is that it is expanding much faster than anticipated, Zhang says. The company outgrew its original site in Zhangjiang in its first year; fortunately, additional facilities were available for rent next door. Zhang says the company is already filling up the extra space and will soon be looking for more. The firm will employ 130 people by year-end, six times more than it had in 2004. It has 105 fume hoods in its chemistry labs.

Like Medicilon, the whole of Zhangjiang is running out of space. Zhang expects that the 80,000 sq ft of extra space he may soon be looking for will be found more than a 30-minute drive away from Medicilon's current location. At the park headquarters, administrator Yu, who also holds several senior positions in the park management, declines to detail how Zhangjiang's land shortage will be solved. She alludes to companies leaving the park and says there is still some land left, without getting into specifics.

Zhangjiang's land shortage could become one of the key selling points of the Suzhou Industrial Park BioBay, an initiative launched in October of last year by SIP. Suzhou is about one hour by train from the center of Shanghai.

Jean-François Tremblay/C&EN
inviting Suzhou hopes to be a new biopharma hub.

BioBay is so new that it has not yet signed up any customers. But it can point to the track record of SIP, which has already brought 2,200 companies, 900 of them Chinese, into Suzhou since it was formed in 1994. Companies located in SIP, China's main software industry hub, employ about 300,000 people, says Yuwen Liu, executive vice president of the firm managing BioBay, SIP Bio & Nano Technology Development. Liu holds a master's degree in pharmaceutics and held managerial positions for eight years with two U.S. drug companies operating in Suzhou and Shanghai.

BioBay is now erecting facilities to welcome companies that create new materials and new medicines. It is spending $68 million to develop 10 million sq ft of floor space, including a large multipurpose building that will house start-up companies, shops, restaurants, and sports facilities. Liu expects that 50% of the newly developed space will go to R&D operations, 20% to manufacturers, and 30% to residences and to commercial services such as law firms, accountants, consultants, and shops.

The park will be fitted with shared research facilities, including labs equipped with expensive instruments that start-ups can ill afford. BioBay, Liu says, will also bring in a private operator to run an animal house where small companies can conduct pharmacological studies. She adds that BioBay is launching several investment funds that will inject money into new firms.

Managers of R&D facilities in and around Shanghai usually justify their companies' decisions to select China's most expensive city by explaining that the best people in China are in Shanghai. But elsewhere in China, managers of R&D facilities and high-tech manufacturing operations say they have no trouble finding the people they need.

Image Title Jean-François Tremblay/C&EN

In Suzhou, Liu retorts that "sure, Shanghai is great at attracting people; I was there for two-and-a-half years." But she claims to enjoy in Suzhou both a more interesting job and a higher quality of life.

In Zhangjiagang, an industrial city where Wacker and Dow Corning are setting up a $600 million silicon production complex, Udo Horns, project director for Wacker's fumed silica plant, says he has had no difficulty attracting qualified engineers. "Zhangjiagang is one of the nicest second-tier cities in China I have seen," he says. Wacker's China R&D center, however, is in Shanghai.

Zhangjiagang, home to 800,000 people, is certainly not a hub of advanced R&D, but that is something the city is working on, according to Vice Mayor Zhonggao Xu. Located about one-and-a-half hours west of Shanghai by car, the city's International Chemical Industrial Park has attracted the plants and logistics facilities of some of the biggest names in the chemical industry: Dow Chemical, Chevron Phillips Chemical, Asahi Kasei, Dainippon Ink & Chemicals, and several others. Xu says the city welcomes chemical companies with environmentally sound practices.

In the long term, he hopes to turn Zhangjiagang into the Chinese equivalent of Midland, Mich. He explains that Midland is a city that is relatively small in size but with a high percentage of Ph.D. scientists among its residents. At job fairs, Zhangjiagang promotes itself to young graduates by emphasizing its low cost of housing and attractive atmosphere. "Our quality of life is the best of the industrial cities in China," he says.

In the south of China, in the bustling city of Guangzhou, Shanghai's alleged monopoly over the country's best quality people sounds like a tall tale. Lonza's general manager in China, John Po, says his company has been pleasantly surprised with the apparent ease of attracting and retaining people at its R&D center, which opened in 2004 and has been significantly expanded since. "There were doubts, within Lonza even, about our ability to find suitable people in Guangzhou," Po says. "We've proven that we can." He adds that only one of the researchers hired over the past two years has left. The company has been hiring throughout China, including in Hong Kong.

Dominique Li, a senior manager at Guangzhou Global Star Investments, the company that manages Guangzhou's four industrial parks, says Guangzhou is a source of high-quality human resources. He notes that there are 39 universities in the city of 10 million, including Sun Yat-sen University, one of the best in China. He adds that it's relatively easy to convince people to move from other Chinese cities to Guangzhou. One attraction is that real estate there costs significantly less than in Shanghai.

In 2002, Guangzhou set up Guangzhou Science City, a new zone aimed at attracting knowledge-intensive industries and R&D centers in the biotechnology, lighting, electronics, semiconductor, and new materials fields. The park, which is similar to Suzhou's BioBay, is more pleasantly landscaped than the other industrial parks for which Guangzhou is known. Science City will also be home to Guangzhou's second American School (elementary and secondary school following an American curriculum), a feature that may help attract overseas managers and scientists with children.

Li says companies find Science City attractive both because Guangzhou is the hub of southern China and because the city has already hosted many successful investment projects over the years. "Companies from around the world have spent $6.3 billion in capital expenditures in Guangzhou since 1985, and the pace is accelerating," he says. Although Science City was launched only recently, half of its space has already been taken up, Li says.

In the southwest of China, the city of Chongqing is setting up an industrial park that, unlike those in Guangzhou, will focus on the chemical industry. The Chongqing Chemical Industrial Park was established only three years ago, but a quick drive through indicates that it could become one of China's major chemical industry centers.

industrial parks Western chemical and drug firms tend to prefer sites near Shanghai or Hong Kong

In the less than three years since the park was launched, private firms and the park's administration have committed to spend a total of $3.8 billion. Half of this amount has now been spent, and the area is one large construction site. Several chemical plants are already operating, including some producing drug intermediates and one facility generating ethanol from sweet potatoes. The park's administration has commissioned a cogeneration power plant, a wastewater treatment plant, and other utilities, and it has prepared about half of the park's surface for companies to set up plants.

"About 80% of our staff, like myself, used to work in the management of large chemical companies before coming here," says Zhenbang Jiang, vice director of the Chongqing Chemical Industrial Park. Jiang was a senior manager at China Petrochemical Corp. (Sinopec Group) before joining the park in 2003. "We know the chemical industry, and we can provide professional service," he maintains.

The park is well served by transport, Jiang says. There's a rail link running through it, it has a chemical shipping pier on the Yangtze River, and the highway to the center of Chongqing and beyond is just outside the gate. He says the park will cover 12 square miles, about the same size as the better established Shanghai Chemical Industry Park in Caojing and the Nanjing Chemical Industry Park.

According to Jiang, Chongqing is traditionally one of the hubs of the Chinese chemical industry. This means that companies setting up in the area can find an abundance of raw materials and experienced staff. In particular, he notes, a venture of BP and Sinopec operates an acetic acid plant nearby, and a petrochemical plant is under construction 150 miles away in Chengdu.

Representatives of several major chemical firms have visited the park, Jiang says. He reports that Bayer has staff in Chongqing to study the feasibility of setting up polyurethane facilities there and that BASF has expressed interest in producing polyurethanes in the park. The two rival German firms have already invested hundreds of millions of dollars in Shanghai's Caojing district to build polyurethane plants.

Jiang is undaunted by the suggestion that chemical company managers might find it inconvenient to live in or travel to Chongqing and might therefore prefer simply to expand the facilities they already have in Shanghai. "Shanghai does not have the raw materials we have here, and costs are much higher there," he states.

Zhangjiang's Yu acknowledges that Shanghai will not consistently be the favorite Chinese location of chemical or pharmaceutical companies. "Each city has different things to offer," she says. Nonetheless, industrial parks in China are increasingly competing against each other to attract Chinese and foreign investors alike. This marks a far cry from the situation up to the mid-1990s, when central government officials in Beijing simply decided where companies could set up their plants.

As competition among the parks increases and their managers study the best practices of industrial parks abroad, setting up production and research facilities in China will no doubt become an even more compelling proposition than it already is.

Chemical & Engineering News
ISSN 0009-2347
Copyright © 2011 American Chemical Society

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